Samsung Electronics Essay Example
Samsung Electronics Essay Example

Samsung Electronics Essay Example

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  • Pages: 10 (2704 words)
  • Published: December 31, 2017
  • Type: Case Study
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Under the guidance of Chairman Sun He Lee, Samsung has emerged as a renowned global industry leader and brand by effectively utilizing technological advancements and efficient corporate management. Nevertheless, Samsung's semiconductor and memory division is encountering increasing competition from Semiconductor Manufacturing International Corp. (SIMI), a Chinese electronics manufacturer. To overcome this challenge, Samsung's executive management must make strategic choices to maintain competitiveness in today's rapidly evolving business landscape.

The following report discusses the internal analysis of Samsung using SOOT and BRIO models, as well as the external analysis of their operational environment using Porter's Five Forces and PESTLE models. Additionally, recommendations for the firm's future strategy in their semiconductor business are presented to the executive board.

In terms of strengths identified through SOOT analysis, Samsung is a leading global memory producer for various elect

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ronic products including PCs, digital cameras, and game players (Change ; Siegel, 2009). The company ranks second in net profit among electronics companies outside of the United States.

Samsung's memory division has surpassed its Japanese competitors in terms of size and profits. This achievement has been possible through strategic investments in production and technological innovation ahead of competitors. Samsung's advantage is further enhanced by having all FAA lines located at a single site, while its competitors have dispersed faceless locations worldwide. Additionally, Samsung products are known for their reliability and customizable features. Furthermore, later discussion will cover the company's innovative approach to human resource management, which also contributes to its success.

Weaknesses - While having a diverse product line is considered a strength, it can also be viewed as a weakness due to potential consumer confusion. Moreover, the extensive production of technological

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products increases the risk of patent infringement. Additionally, they sell a significant portion of their DRAM products to major competitors in the consumer market such as Dell, Nixon, and Toshiba.

Opportunities - The semiconductor industry is gaining more economic significance, and communication products like cellular devices, switches, and hubs are expected to increase their share from 3.5% to 7% of the DRAM market by 2008.

Threats - Local Chinese competitors lower prices to gain market share, posing a threat to innovation. Although these companies may lack organizational experience and tacit knowledge, they have access to external finance and talented local engineers that could enable them to excel in design and production processes. Additionally, there is an anticipated cyclical downturn in the memory chip industry in 2005.

Porter's 5 Forces Model Level of Competition - Much of the competition in the memory industry comes from Chinese companies.

In terms of threats, as discussed in the analysis, Samsung's position as the market leader is being jeopardized by their willingness to prioritize market share over profits. Semiconductor Manufacturing International Corporation (SMIC) and several other Chinese companies have primarily concentrated on producing logic chips, but there is a possibility that they may also venture into manufacturing memory chips in the future. Meanwhile, numerous non-Chinese competitors are making investments in production, although a few are encountering challenges. The significant capital investments being made serve to reduce the potential threats posed by new entrants.

In 2005, the industry faced fierce competition as numerous Chinese firms joined the market. Despite this, it remains challenging for new players to enter due to obstacles such as intellectual capital, costly production facilities, and the dominance of established major

companies. As the current participants in the industry are large in size, newcomers must invest more in marketing to develop industry connections and establish their presence (Llama, Semiconductor & Circuit Manufacturing: Competitive Landscape, 2014).

The semiconductor industry is not highly threatened by substitutes at the moment. Semiconductors are essential components in nearly all electronic devices, and there are currently no viable alternatives. Unless a new technology emerges that can offer a more advanced and efficient approach to introducing electrical conductivity in electronics, the substitute threat will remain low. Currently, there are no effective substitutes capable of competing with DRAMS or Flash memory (Change & Siegel, 2009).

The bargaining power of suppliers in the memory industry is significant due to the increasing complexity of semiconductor equipment. By late 2004, this power remained high in the semiconductor industry as a result of a concentration of suppliers. The market is dominated by three major companies - Applied Materials, Tokyo Electron, and ASSAM - creating an oligopoly in the supply of raw materials for semiconductor production. High-volume buyers are able to secure discounts up to 5% from memory raw material suppliers.

The competition between PC producers was intense, leading original equipment manufacturers to engage in tough price negotiations and pay an average of 1% more for a reliable supplier. In the memory industry, buyers are highly concerned about prices and are more fragmented compared to suppliers. By 2005, no single original equipment manufacturer had a market share exceeding 20% in the global PC market. Many companies' sales rely heavily on a few key customers, with smaller companies especially focused on providing exceptional service to larger customers.

In order to

reduce their dependence on their largest domestic customers, numerous companies opt to seek out new customers in foreign markets.

The Political aspect of PESTLE highlights the influence of government actions on businesses. This can be observed through the promotion of globalization, which is supported by policies like industrial policies, tax incentives, and free-trade agreements. Globalization opens doors for businesses to extend their product reach worldwide.
In China, the government actively seeks to attract investments in high-tech semiconductors by providing advantageous term loans, land leases, affordable utilities, and lower wages for engineering talent. These initiatives aim to enhance China's competitiveness in the global market.

The semiconductor manufacturing and sales industry may face a threat from new competitors with lower operating costs due to these incentives. This industry already has low profit margins. The expanding economies of developing nations drive the demand for modern electronics, which in turn creates a need for components such as logical chips, batteries, flash memory, and DRAM memory. Samsung is expected to see higher demand for its flash memory products in the coming years, particularly in markets for cell phones and digital cameras.

Despite advancements in DRAM memory for personal computers, there is still potential for growth due to developing nations strengthening their economies and creating wealthier populations. Samsung can take advantage of this by offering its products to emerging markets. However, semiconductor demand relies heavily on the demand for electronics and their components, making it susceptible to overall economic conditions. A decline in the global economy would inevitably affect the demand for electronics and semiconductors.

Managing a multinational workforce has become more difficult for HR executives due to the increase in industry

mergers and acquisitions. Additionally, outsourcing software development and help desk operations has necessitated adjustments to employee benefits and procedures to meet different countries' requirements. In smaller companies, competition for experienced employees can be fierce as these companies heavily rely on a few individuals with technical expertise (Hover's, Inc. 2014).

Large global semiconductor manufacturing firms like Samsung must adhere to environmental regulations and face public scrutiny. Currently, Samsung is implementing green operations initiatives that aim to reduce pollutants, conserve resources, and control hazardous substances. However, these initiatives inevitably consume company resources.

The semiconductor industry is rapidly advancing technologically. According to Moor's Law, the number of transistors on an integrated circuit doubles every two years, while Hang's Law predicts an even faster pace for flash memory density. As a result, Samsung and its competitors consistently manufacture memory chips that are smaller, faster, and more powerful each year.

The introduction of a new chip with enhanced capabilities generates high demand from consumer electronics manufacturers aiming to develop sleeker and more advanced devices. Consequently, the new chip is priced higher than existing models. Simultaneously, older chips in the product family that offer lower capabilities rapidly become outdated and experience a decline in demand. As a result, these obsolete chips are sold at substantial discounts. Moreover, the industry follows moderate regulations and is influenced by standards concerning trade, intellectual property, and the environment.

The relevance of intellectual property law in safeguarding a company's inventions and ideas (Llama, Semiconductor ; Circuit Manufacturing: Operating Conditions, 2014) is crucial, as it also pertains to the US federal potential for dual use in military applications. In 2005, the U. S. Department of Justice accused Hindi

and other memory manufacturers of colluding to manipulate prices in the U. S. market between April 1999 and June 2002. Hindi settled the charges by making a payment, while Samsung set aside funds as a provision for potential future settlements.

Samsung's service capabilities in DRAM are considered valuable, rare, and difficult to imitate. These capabilities are supported by the organization and entail human resources, firm infrastructure, and technological development. Specifically, Samsung's memory division has the capacity to manufacture over 1200 variations of its DRAM products, allowing them to cater to both large customers and niche orders.

Samsung sets itself apart from competitors through its extensive range of production capabilities. This is a crucial focus for the organization as replicating these capabilities by others is challenging due to their high cost. One area where Samsung excels is in its human resources program, which holds significant value for the company. While this may not be uncommon in the industry and can be imitated with sufficient investment of time by other firms (Yon, 2014), Samsung has successfully established an exceptional program.

Additionally, at its main R;D facility, Samsung promotes collaboration and problem-solving through initiatives like providing housing for engineers and encouraging shared meals and workmates. Moreover, Samsung has introduced innovative changes to its hiring and promotion practices by moving away from considering university attended or background, instead favoring performance-based promotions over traditional seniority-based ones.

Samsung provided financial support for their employees' education and training globally, enabling them to gain a more diverse cultural perspective. The company actively sought out foreign talent and offered highly competitive salaries, with the possibility of bonuses up to 300% for outstanding performance (Change

& Siegel, 2009). These Human Resources practices allowed Samsung to attract talented individuals from around the world, fostering innovation and preventing expensive managerial errors.

Samsung has a robust infrastructure that allows them to manufacture DRAM chips at the industry's most affordable price. They have operations in 58 countries globally and have incorporated their own semiconductors into their consumer electronics, leading to additional cost reductions. This infrastructure, which demanded substantial time and investment, sets them apart from others in the industry. In the early 2000s, Samsung invested more than $1 billion to create a larger and more advanced wafer, demonstrating their dedication to innovation and cementing their position as leaders in the field.

Samsung's infrastructure is difficult to replicate due to the significant capital investment it requires. Compared to its competitors, Samsung spends less on research and development, resulting in a lower R&D/Sales ratio. However, they are still able to achieve high retail prices and low manufacturing costs, allowing them to consistently have the highest profit margin for DRAM chips in the industry. Furthermore, Samsung has always been at the forefront of technological advancements since its establishment, which greatly benefits the company.

Samsung acquired memory production technology from Micron and invested heavily in understanding and improving it. Developing technological R&D is expensive, so choosing the right design, such as stacking vs. trenching of cells in a chip, has a significant impact on the company. Samsung's competitors have wasted billions of dollars and years of R due to their wrong choices. Moreover, Samsung's substantial resources allowed them to invest in emerging technologies before their rivals.

The company's investment of $1 billion in mass-producing 8-inch memory wafers in

the early asses has proven to be highly successful and has established Samsung as a leader in the DRAM market for the next 13 years (Change ; Siegel, 2009). Samsung's high profit margins and revenue enable them to maintain their dominance in the industry, making their level of technological development unique and challenging to replicate. The industry continues to support Samsung's technological development through ongoing investment in RID.

Samsung, a renowned global brand, ranks 21st globally and surpasses its electronics competitors in the Marketing ; Sales industry. The management's dedication to quality, innovation, and reliability has established a unique competitive advantage. In this situation, Samsung faces two strategic options that could significantly impact the company's long-term success.

By 2010, the Chinese are projected to become the second largest buyer in the semiconductor market. While facing infrastructure and economic constraints that prevent them from producing cutting-edge chips, China is prepared to enter the market with affordable, lower quality chip manufacturing. They plan to initially sell these chips at a loss for several years in order to gain market share, following a strategy similar to Samsung's approach. To mitigate some of their losses, the Chinese government is providing subsidies to support the technology sector.

The subsidy is drawing financial investors, supporting the creation of new manufacturing facilities. Samsung must decide whether to compete with China in terms of cost or to completely withdraw from this low-cost market. Another possibility for Samsung is to partner with China and build a plant there, but this would mean sharing their practices with the Chinese and potentially jeopardizing their intellectual property and cultural heritage. Alternatively, Samsung could redirect its attention towards

niche markets and high-end, high-margin products while reducing its focus on competing in the low-end DRAM market.

By abstaining from endorsing the inexpensive manufacturing of China, Samsung can impede the advancement of the Chinese semiconductor sector. The objective of Samsung is to create groundbreaking technology that can lead to fresh patents and penetrate untapped markets. With a R/Sales ratio of merely 8%, Samsung possesses abundant resources to invest in these emerging technologies (Exhibit 1). Nevertheless, the downside of this strategy is that the Chinese have exhibited a resolute determination to make sacrifices in order to excel in this industry, rendering it unavoidable for them to eventually acquire this technology.

We suggest that Samsung should adopt a hybrid strategy, taking into account the two choices presented. We anticipate that irrespective of Samsung's decision, the rising competition from Chinese firms in the semiconductors industry will lead to a decline in market share. Nevertheless, we also perceive a potential opportunity for Samsung because of the growing demand for memory chips by Chinese consumers and businesses. It is imperative for Samsung to exercise caution when sharing their designs and reduction techniques with a Chinese business partner due to the absence of intellectual property safeguards in China, which could have unfavorable consequences in the future.

It is suggested that Samsung collaborates with a prominent "foundry" company in China, which focuses on chip manufacturing rather than design. The aim of this partnership would be to produce a large quantity of low-end DRAM chips to meet the increasing demand for such memory chips in China. Furthermore, this approach would help counterbalance the expected price decrease in this market segment caused by the

entrance of new Chinese companies. For its remaining primary business activities, Samsung should concentrate on catering to the high-end market niche.

Samsung R stands out in the industry for its ability to innovate and create exceptional products compared to competitors. Its advantage lies in having the lowest cost as a percentage of sales, which allows it to invest heavily in research and development (R) using its capital and resources. Samsung is also a leading player in the semiconductor industry, so it should capitalize on its technological expertise instead of solely focusing on retaining market share for low-end commodity DRAM chips.

To maintain a competitive edge, Samsung must prioritize the innovation of higher-capacity chips and the release of new versions. This is especially crucial for emerging markets like flash memory products, which are highly sought after by cell phone and digital camera manufacturers. By integrating their latest chips into their existing consumer products, Samsung can ensure that their cell phones and TV's consistently provide the latest features. Ultimately, this approach will lead to greater profitability across the company.

Samsung designs its products in-house in Korea and has a restricted manufacturing partnership with a Chinese foundry for low-end mass production targeted at the Chinese market. As part of this collaboration, Samsung shares the manufacturing schematics with the Chinese foundry. Furthermore, they establish quality control, reporting, and monitoring functions, as well as communication protocols.

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